Scoring Your FICO

The home buying process doesn't start with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process starts and ends with your finances. Saving your money for a down payment is great, but if you lack an acceptable credit score to back it up, you could end up renting for another couple of years in Phoenix Metro Area until your FICO score is acceptable.

The Fair Isaac Company bases your FICO score on the summary of your complete credit history. Most people usually have a score of 600, but scores range from 300 to 850. Since we've experienced an economic downturn, however, some borrowers have seen their score drop dramatically because of underemployment, closed credit card accounts, or credit card accounts terminated because the card didn't carry a high balance. Some of the pieces in calculating your FICO score are:

• Credit Inquiries — How many times has your credit history been accessed by someone other than you?
• Types of Credit — Do you have a healthy mix of loans and credit cards?
• Payment History — How many late payments have you made?
• Credit to Debt Ratio — How much do you owe versus your available credit?

When you pull your credit report, you'll discover that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different systems to calculate your credit rating. FICO is used by Experian. Equifax's model is called BEACON and TransUnion uses EMPIRICA. Because of this, you have three scores, one for each scoring model.

When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn't a problem. Your FICO score gives lenders a view of what type of borrower you'd be based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 700 or higher to get a satisfactory interest rate. If your score is lower, you can still qualify for a loan, but the interest accrued over time could be more than double the amount of an individual having a higher credit score.

There are strategies to boost your score. Improving your FICO score takes time. It can be rare to make a large-scale change in your FICO score with quick fixes, but your score can improve in a year or two by monitoring your credit report and by wisely using credit. The best way to do this is to know your FICO score. You'll improve your credit score by using these pointers:

• Keep your cards in rotation. Whether you have older cards, or are just getting started with credit, use your cards to make sure your accounts stay active. But, be sure to pay them off in no more than two or three payments.
• Stay on top of payments. Your credit score plummets with every account that goes to collections. It's one of the reasons people who have recently experienced job loss see the biggest dip in their credit score. Yes, it takes longer to restore your credit this way, but it's the surest way to prove that you're able to make payments to a bank.
• Correct your credit report. If you find mistakes on your credit report, contact the bureau requesting that the item be removed. If you have a common name or the same name as a family member, you'll want to pay extra attention to make sure the activity reported is correct.
• Even out your debt. At first, this doesn't sound like a good idea. But, you don't want to have one card that is holding the maximum and have your remaining cards at a zero balance. It's better to have each of your cards at a smaller balance than to have the bulk of your debt taking up the balance one card.
• Department Store cards and gas station cards. For those who have no credit or less-than-stellar credit, chain store credit cards and gas credit cards are ways to repair credit, increase your spending limits and stay on top of your payments, which will raise your FICO score. You should always avoid maintaining a large balance for more than a couple of months because these types of cards usually have a surprising interest rate.

Now that you're more informed about credit reporting, you'll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Know that when it's time to apply for a loan to purchase a home, you'll want to keep your credit inquiries within a two-week window to avoid adverse effects on your credit score. With the help of Arizona Premier Realty Homes & Land LLC., shopping for a mortgage is sure to go more smoothly so you, too, can achieve home ownership.

To learn more, visit www.myFICO.com, Fair Isaac's informational site and review your credit history for free at www.annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: www.equifax.com, www.experian.com and www.transunion.com.